Crude oil trading outlook: futures inch up, set for eight weekly decline

Both West Texas Intermediate and Brent crude edged up on Friday on technical support but headed for the longest streak of weekly losses in almost three decades as OPEC forecast lower demand for its crude, while maintaining its supply quota. A firm dollar also pressured the market.

US crude for delivery in March rose by $0.52 to $47.25 per barrel by 8:37 GMT, having shifted in a daily range of $47.44-$46.40. The contract slid 4.55% to $46.73 on Thursday after it touched a 1-1/2-week high of $51.73.

Meanwhile on the ICE, Brent for settlement in the same month was up $0.45 at $48.75 at 8:40 GMT, having ranged between $48.92 and $48.07 during the day. The contract fell 3.19% yesterday to $48.27 after it earlier had risen to $52.42, the highest since January 9th.

The oil market consolidated on Friday following another session of hefty losses as prices reached a technical support area.

“Our forecast seems to point towards a consolidation stage in the weeks to come,” Phillip Futures said, cited by CNBC. “Therefore, we expect crude prices to trade range bound between $44.75-$50.69 for WTI Mar15 and $46.4-52.89 for Brent Mar15.”

However, despite the slight gains, oil was set for an eight consecutive weekly decline as the outlook for slower economic growth this year fanned concerns that the global economy wont be able to soak rising oil supply at times of record-high US and Russian output.

Data by the Energy Information Administration showed on Wednesday that US crude production rose by 60 000 barrels per day to 9.192 million bpd last week, hitting the highest level for weekly data dating back to January 1983. The surge comes even as prices continue to decline, having already dropped by about 60% since a June peak, pointing to evidence that improvements in the production technologies can sustain a high level of output even as investments are cut, rigs are idled and workers are laid off.

Lower demand

OPEC said in a January 15th report that demand for its oil will fall to 28.8 million barrels per day in 2015, the lowest in 12 years. The group, which accounts for about 40% of global supply, raised its output by 140 000 bpd to 30.2 million barrels per day in December, the report showed, and expects its share of the market to drop to 31.2% this year from 31.9% in 2014.

Despite the softening demand figures, the oil cartel reached a collective decision on November 27th in Vienna not to cut output in order to defend its market share and force US shale producers with higher production costs out of the market.

Members of the group have signaled their determination to cope with lower prices by revising their budgets in accordance to the markets current state. Iran lowered the crude price for its 2015 budget that begins March 21st to $40 per barrel from $72 previously, while Iraq had already presumed $60 per barrel for its budget and Saudi Arabia is probably assuming $80.

Meanwhile, Venezuela, which holds the worlds biggest proven crude oil reserves, plans to work together with OPEC and non-OPEC producers to normalize prices, President Nicolas Maduro said. Maduro met with his Russian colleague Vladimir Putin in Moscow to discuss the current situation and how it affects both economies. Venezuela is among the countries that have been calling for OPEC to reduce output and protect the market from a steep drop.

Goldman Sachs, among other banks, slashed its outlook for the year, predicting a further slump in prices before US producers cut investments, which in turn will ease a supply glut and allow the market to balance itself out. It expects US crude to trade at $39 and $65 per barrel in six and twelve months, respectively, compared to previous projections for $75 and $80, while the outlook for Brent was slashed to $43 and $70 from $85 and $90 earlier. For the first quarter, WTI is projected at $41 and Brent at $42, the bank said.

Earlier in the week, the World Bank cut its global growth estimate this year citing subpar expansion in Europe and China. The global economy is now expected to grow by 3% in 2015, compared to a previous projection for 3.4% made in June.

Strong dollar, Swiss shock

A firm US dollar also weighed on oil prices. The greenback rallied to the highest in 11 years against the euro after the Swiss National Bank unexpectedly removed the CHF1.20 per euro cap, triggering the euros biggest one-day fall against the franc on history. The central bank said that the depreciation of the euro against the US dollar has led to a weakening of the franc against the greenback as well, thus the cap, which was meant to protect the franc against a too high valuation, was no longer justified.

Moreover, further weakness in the euro is expected amid speculations that the European central bank would initiate large-scale bond buying at its policy meeting next week

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $48.33. In case the contract breaches the first resistance level at $50.13, it may rise to $53.53. Should the second key resistance be broken, the US benchmark may attempt to advance $55.33.

If the contract manages to breach the first key support at $44.93, it might come to test $43.13. With this second support broken, movement to the downside could continue to $39.73.

Meanwhile, March Brent’s central pivot point is projected at $49.59. The contract will see its first resistance level at $51.10. If breached, it may rise and test $53.94. In case the second key resistance is broken, the European crude benchmark may attempt to advance $55.45.

If Brent manages to penetrate the S1 level at $46.75, it could continue down to test $45.24. With the second support broken, downside movement may extend to $42.40 per barrel.